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Society and Economy |
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COMMENTARY I enjoy the dialog, but seems to me there is a missing segment to the conversation. What role to banking and financial institutions have in the crises, first in 2008 and now again in 2011. Why did the financing institutions get in 'over their head' and then surprise surprise the borrowers cannot pay back and the banks are on the hook. Except sorry ... very big banks are too (well paid and) important to be left on the hook, so along comes the political elite to bail out their banker friends and 'we the people' get screwed. When political leaders and bankers say that it is impossible to 'bail out' the big economies like Italy and Spain what they really mean is that the banks have behaved so incredibly badly that the banks are really bust. It is a pretty disgusting state of affairs ... these are completely amoral casinos. I want to see more dialog about the role banks have played in all of this.In respect of technical issues, my big question relates to the methods used to measure production by the OECD statisticians. The graph shows an interesting divergence, but I am not convinced that the divergence is caused by the currency ... it is much more likely to be much more to do with choices that each country has made around its investment in education, research and development and industrial technology. My guess is that Germany has invested in these things in a much more serious way than the Italians, Greeks, Spaniards, etc ... and I am also fairly certain there is something about the banks themselves that should be put into the analysis. Peter Burgess |
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Germany and France are strong. Greece and Italy are not. Why the Euro itself is the problem Someone Please Send This Chart To The Germans... If you want the ultimate German take on the euro crisis, you must go read the FT's interview with Bundesbank chief Jens Weidmann. It basically comes down to this: There is no Euro crisis, there's only a crisis in various European countries, and they're all unique. In Greece, they racked up too much debt. In Italy their politics are crap. The solution: stick to the original rules, and everything will be fine. What's incredible -- and almost impressive -- is how uncool this thinking is. And we don't mean that in a pejorative way, but rather, nearly everyone else thinks that the Euro has structural problems associated with the fact that countries don't have flexible currencies, and thus can't adjust, or naturally overcome their debts. Paul Krugman nailed the problem pretty well in one sentence this past week, explaining that countries like Greece and Italy voluntarily reduced themselves to the status of third-world countries that have to borrow in a foreign currency (the euro). Anyway, Bundesbank's Weidmann is incorrect. It's not a crisis that's just about unique situations in various European countries. It's a Europe problem, and more great evidence of this comes from this awesome chart from Naufall Sanaullah's latest economic overview showing the difference in Italian-German industrial production pre-and-post Euro. As you can see, the two countries grew mostly in line in the years up until they fixed the exchange rate. It was after the exchange rate got fixed, and the Italians no longer had the power of competitive devaluation that the gap started to emerge. Of course, this is consistent with several other points people have made that basically the euro has been a great boon for the Germans, as all of its partners have been both stymied (less currency flexibility) and been afforded more credit (with which to buy more German goods). So yes, someone please send this chart to the Germans, preferably tonight, so they can greenlight the ECB's inevitable market intervention.
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Joe Weisenthal
Nov. 13, 2011, 4:42 PM |
| The text being discussed is available at http://www.businessinsider.com/the-euro-itself-is-the-problem-2011-11#comment-4ec06fcfeab8ea9907000010 |
